March Madness – Retirement Edition
March Madness is in full swing for NCAA men’s and women’s basketball. As teams prep for a grueling month of games to decide those who will win the NCAA championship, financial service providers grapple with a barrage of questions on the best, most winning strategy for retirement.
A meager 22 percent of workers are “very confident” in their retirement savings, according to the Employee Benefit Research Institute’s 2015 Retirement Confidence survey. This comes as no surprise when you consider only 67 percent of workers reported having saved for retirement.
Many hit retirement age with little savings set aside specifically for retirement. If this is your plan for retirement, it’s time to reassess your strategy. Without having funds earmarked for retirement, your savings may fund other expenses, such as health care, leaving you with nothing for retirement. This means putting off retirement or reentering the workforce after you’ve already begun your retirement. Avoid this predicament by setting aside savings in an account geared toward your retirement and allow it to compound while you’re still in the workforce. Otherwise, you’ll be out in round one.
34 percent of Americans rely almost entirely on social security to fund their retirement, as stated in the Social Security Administration’s basic fact sheet. However, the average monthly dollar amount most Americans receive in Social Security benefits is $1,335. That amounts to just $16,020 annually, which is dangerously close to the poverty line in most states, according to the U.S. Department of Health and Human Services poverty guideline.
With most Americans needing 80 percent of their current annual income to retire comfortably, Social Security benefits alone won’t provide enough support for a dignified retirement.
An Individual Retirement Account is a formidable player in your retirement strategy. Anyone interested in saving for retirement can set up an IRA through a number of providers. There are certain tax privileges afforded to an individual contributing to an IRA as well. A traditional IRA, for example, defers taxes until money is withdrawn from the IRA at retirement. With a Roth IRA, taxes are paid up front and are not taxed at withdrawal. Discuss these options with your financial advisor when establishing an IRA.
IRAs are entirely self-funded, meaning they won’t quite compete with a 401(k) plan, which generally includes contributions by the employer as well as the participant. The limits on contributions to an IRA are also significantly less ($5,500 in 2016) than contributions to a 401(k) plan, which max out at $18,000.
The 401(k) plans are the top contender when it comes to retirement savings. Along with the tax benefits of an IRA, a 401(k) comes with higher plan limits, professionally managed accounts and the option for employer contributions on top of your own.
Similar to an IRA, 401(k) plans offer both Traditional and Roth contributions, leaving it up to each participant to decide which option best fits their retirement game plan. Another incredibly beneficial option in 401(k) plans not found in an IRA is the employer match. The plan sponsor can elect to match a percentage of your contribution, essentially doubling up the funds added to your retirement fund with no additional cost to you.
Win your retirement by exploring all 401(k) or IRA options with your financial advisor today!
If you’re a plan sponsor with questions about establishing a 401(k) for your employees, contact us at 405-848-4015 or firstname.lastname@example.org.